Koerber-Walker: Striking the Right Balance When Controlling Health Care Costs

The president recently met with about a dozen GOP leaders to try to find some common ground on deficit reduction policy. The session was closed door. But as the congressional budget war begins, there are serious indicators that if there is a “grand bargain” on fiscal reform it will include changes to Medicare.

This makes sense. Medicare is a big part of the debt problem. What’s disturbing, however, is that some in Congress want to aim their cuts at the one part of the program that’s been exceptionally effective at containing costs: the Medicare Part D drug benefit.

Implemented in 2006, Medicare Part D is administered through a competitive bidding system. Enrollees are empowered to shop around for the private insurance plan that best fits their needs. And then the government helps with the tab.

At 10.6 percent of the total Medicare budget, Part D may appear to be a logical place to look for cost-savings. But a closer look reveals that such cuts would be counter-productive.

Medicare Part D is an anomaly among federal health programs. Participating seniors and disabled patients have seen their benefits grow more robust every year. Part D routinely clocks in user satisfaction scores in the 90th percentiles.

At the same time, Part D has come in well below Congressional Budget Office cost estimates. Between 2011 and 2012, the CBO reduced its 10-year cost projection for the program by over $200 billion.

Part D saves money by cultivating a competitive price environment. And the program also incentivizes the use of low-cost generic drugs.

Part D also helps reduce the rate of hospitalization by getting patients the drugs they need to stave off serious illness. In fact, the CBO estimates that Part D reduces hospitalization costs by as much as $500 million per year.

Medicare Part D is working better than many expected it to. It’s driving down costs and expanding access to needed pharmaceuticals. Yet some in Congress have targeted Part D for cost-cutting.

Rep. Jan Schakowsky and Sen. Richard J. Durbin, both Illinois Democrats, have introduced legislation to require the government to “negotiate” for lower drug prices in Medicare Part D. Such legislation would ruin the market competition that has made Part D so successful.

Last year, President Barack Obama’s budget called for drug companies to offer the government “rebates” on the drugs sold to low-income Part D enrollees. Several congressional lawmakers supported this proposal, so he’ll undoubtedly push for it this year.

Some see this as an easy way to cut down on Medicare costs without affecting patient care. It’s imperative that our congressmen understand why this is not the case.

Drug manufacturers have invested about $48.4 billion into research and development over the last five years. That’s a massive amount of money. It’s enough to buy Time Warner, General Motors, Deutsche Bank, E.I. du Pont de Nemours & Co., and Target — with some cash left over.

Like any corporation, biopharmaceutical companies must balance their books and provide a reasonable return to their investors. Squeezing down their revenues with misguided reforms like the Part D rebate would choke off the money available to discover new drugs and diagnostics.

As the budget debate in Congress heats up, our lawmakers must remember that short-term fixes can get very expensive over the long run. Now is certainly the time to seriously look at every penny this nation spends. But Congress also needs to preserve the public programs that are helping to rein in costs and improve lives. Part D is just such a program.

Joan Koerber-Walker is an investor in American technology companies, an entrepreneur, a former Fortune 500 executive. She currently serves as President and CEO of the Arizona Bioindustry Association.